Investment Highlights

• We maintain BUY on Kimlun Corporation with an unchanged fair value (FV) of of RM1.17/share based on FY23F PE of 9x. This is in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our 3-star rating.

• Kimlun was awarded a contract from Bayu Melati to provide main building works for 2 blocks of service apartments in Selangor. The contract value of RM237.6mil will last until Jan 2027.

• We estimate the accretion to Kimlun’s gross profit (GP) to average at RM5mil per year (or 4% of FY23F group GP).

• We make no changes to FY23F-25F earnings as the awards are within our replenishment assumption of RM680mil. Potential jobs that Kimlun may win include Pan Borneo Highway, Johor-Singapore Rapid Transit System, road upgrading works in Johor and affordable housing projects.

• Looking ahead, we believe that Kimlun could benefit from the construction of MRT3, of which subcontracts are envisaged to be awarded in late-2023F.

• Recall that in 2012 and 2016, Kimlun bagged sizeable supply contracts of RM524mil involving tunnel lining segments and segmental box girders for MRT1 and MRT2.

• Risks include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising costs; and (iii) shelving of mega projects.

• We believe that the stock is currently undervalued, trading at FY23F PE of 5.5x, substantively below our 9x benchmark for small-cap construction stocks and offering decent dividend yields of 5%.

Source: AmInvest Research - 2 Jun 2023